Type of home equity loans

A home equity loan allows homeowners to access the equity in their primary residence without going through the process of selling their property. Equity is the difference between the market price of the home and the mortgage payments that are owed against it. Traditionally, home equity loans were called second and third mortgages.Any person who wants to take up a home equity loans must have a very good credit history and also have reasonable loan to value ratios. A home equity loans are mostly offered for a short period of time than first mortgages. In the United States, it is sometimes possible to deduct a home equity loan interest from one's personal income taxes.There are two types of home equity loans. One is the Closed End Home Equity loan and the other is the Open End Home Equity loan. In the Closed End Home Equity, the borrower will receive a lump sum when they close the equity loan and cannot borrow further. The maximum amount that can be borrowed depends on the borrowers’ credit history, income, and the appraised value of the collateral. In a closed end home equity loan the interest rate is fixed and the loan payment can be stretched for a period of up to fifteen years. Borrowers can also reduce the amortization period by paying large amount at the end of the repayment term. A borrower can also avoid making large lump sum payments on their equity loans by paying more than the minimum amount due every month or by refinancing the loan. An Open End Home Equity loan is a revolving credit loan where the borrower chooses when and how often to borrow against the equity in the property. You can stretch the repayment period for up to thirty years at a competitive variable interest rate. The minimum amount to be paid in a month can be as low as the interest amount that has to be paid. The two type of home equity loans are referred to as second mortgages and cam be received against the value of the property just like a mortgage.

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